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Empowerer

Shelter Companies bring foriegn investment home to Mexico

The Croatian government wants Second Generation Diaspora Croats to return to Croatia to set up businesses to help improve the Croatian economy (or so they say). BUT, if the business environment is toxic chances for long term survival are low no matter how good the tax incentives are or how much free EU money you get. An interesting learning opportunity for improving the probability for success might be found in Mexico - in the maquiladora "Shelter Services" industry which has helped thousands of manufacturing companies set up in Mexico (stealing hundreds of thousands of Canadian and American jobs!)

This fall, from October 26th until October 30th, MEETING G2.1, an economy forum for Croatian diaspora will take place in Zagreb. The five day event, organized by FORUM Zagreb Congress Center, will be held under the auspices of the State Office for Croats Abroad in state institutions and in the same venue.

The mission of MEETING G2.1 is to help revitalize economy by gathering successful entrepreneurs, Croatian business people from abroad and entrepreneurs / project starters from the homeland. Successful representatives of second generation emigrants (G2) will be introduced to opportunities for economy investment in Croatia, while domestic entrepreneurs, employers and innovators will share the best international practices and meet successful Croatians from the entire world.

I wonder why anyone would want to take a high risk starting a new venture in Croatia.
Are tax incentives and free EU money enough?

IMHO: It does not matter how much EU money you get or how nice the tax incentives are if the political and business environment is toxic - where rule of law is low (dependent on your political affiliations and donations) and trust in the business eco-system and business partners is low.

The most embarrassing assessment is that Croatians are actually proud to be #33 in Tourism Competitiveness! Tourism is one of the most important sectors of the economy and Croatia is #33 out of 141 countries according to "The Travel & Tourism Competitiveness Index Ranking 2015"

Coming to Croatia

"Coming home" to Croatia sounds romantic and adventurous but setting up a business is risky.

You do not know the bureaucracy

You do not know who can be trusted

You do not know the market

Worst of all there are con-artists that want to take advantage of returnees. It seems that to some Homeland Croats it is a mark of prestige to outsmart and swindle naive and gullible Diaspora Croats.

Having a local partner that can help you:

learn what you need to know

move through the system

get you connected with trustworthy partners

provide services at lower resulting from economies of scale

... can all minimize the risk of setting up a successful business.
It is in no-one's interest to have new venture fail.

Obviously, having a new-venture friendly government and bureaucracy is needed also.
Croatia is very business unfriendly - even toxic.

Mexico has 50 years of experience in attracting American and Canadian businesses.
What can we learn from Mexico?

The Mexican federal government, as well as state governments, are very active in attracting foreign direct investment in Mexico. The Secretariat of Economy has set up a directorate called ProMéxico and National Council of the Maquiladora and Export Manufacturing Industry (CNIMME) which have set up legal infrastructure for low-risk manufacturing opportunities for small and medium sized manufacturing companies through "Shelter Services" ("empresas albergue" = business hostel) and 4 years of tax freedom.

An example of success via the shelter program is Fokker Aerostructures setting up a factory, "Fokker opens Mexican facility" in Chihuahua Mexico through the assistance of shelter partner American Industries. Fokker came to Mexico and set up shop with the help of American Industries. One plant became two, two became many and in a few years Fokker was strong enough to set up its own independent shop.

Shelters are private Mexican businesses that help American, Canadian and European manufacturing companies set up shop in Mexico. Shelter services provider Mo-Mex explains the service this way:

A shelter plan is essentially an out-sourcing program, in which a shelter operator provides a manufacturing facility, workers and administrative support for the manufacturing operations of a client. The basic idea is for the shelter operator to provide all of the Mexican resources which the operation requires and for the client to provide the machinery, equipment, raw materials, components and know-how required to produce the client's products.

By setting up operations in a shelter, the client is relieved of the tasks and risks of finding or building a facility, hiring workers, dealing with Mexican labor unions, moving goods in and out of Mexico, insuring compliance with Mexican labor, tax, environmental and customs laws, purchasing goods and services in Mexico, and performing other administrative tasks, many of them unfamiliar, in a foreign country, with laws and regulations written in Spanish.

By using our Mo-Mex Shelter Plan, our clients avoid creating a legal presence in Mexico. That can result in substantial cost savings and avoids many headaches. Because we pay Mexican vendors, our shelter clients do not even have to open a Mexican bank account. Shelter Plan clients are exepmt from Mexican income taxes during the first four years of operations.

Onilog says of shelter services

Under the typical shelter arrangement, manufacturers send raw materials and supervisory personnel to train and manage workers, while the shelter company performs the tasks and functions that are not “core” to the manufacturing process. The manufacturer controls those areas that affect profitability and sustained growth. This is a value-added outsourcing arrangement in that it gives manufacturers a means by which to greater leverage core competencies and intellectual assets. An organization that does this becomes more nimble, and experiences faster and higher levels of innovation. Additionally this arrangement is attractive to firms seeking to pursue strategies of leveraged growth.

Our Shelter Services- Incubator Programs have a six ( 6 ) month “trial” contract with 60 days notice. The investment or risk is only six (6) months! Once an operation grows beyond incubation, another facility is located and the customer is moved into it. Our customers are also welcomed to stay if growth is not achieved or simply wishes to stay.

A Shelter Program is a contractual relationship that gives a company the ability of establishing it's own operation in Mexico the fastest and most economical way possible.

The Shelter provider is a company that is already well established, legal and working identity. It is a mature, efficient and successful identity with all the "infrastructure" and people in place. The provider takes in a client under its "umbrella" , gets it started quickly without the hassles associated in starting an operation.

The client basically becomes a department of the Shelter, taking advantage of the infrastructure and talent already in place. The Shelter provides support and "protection" to its clients during the length of the contract, treating the client as its own .

After the terms of the contract are up, usually 2-3 years. The client is well prepared to go on its own with the full assistance of the Shelter provider.

A Shelter Program allows a company to quickly operate as a mature, efficient and successful business without having had to spend the years of time and effort to accomplish the same level of proficiency it would have had on its own.

The second phase consists of putting together the staffing that will enable production to occur... can be achieved in 30 – 60 days.

The third phase in initiating Mexico manufacturing operations is the formation of the supply chain... typically last for a period of 30 - 90 days

The fourth step that must be addressed to begin manufacturing in Mexico is the actual production start-up phase. With experienced assistance, this stage of the Mexican manufacturing project can occur within 60 – 90 days.

Shelter provider DIMSA , which provides shelter and business process outsourcing (BPO) illustrates the division of responsibilities this way:

The Mexicans are doing something right! They have stolen hundreds of thousands of jobs from Canada and the USA. There are many success stories in the shelter services industry.

What can Croatia learn?
Can Croatia emulate anything from the Mexican business shelter services industry?